It looks like investors may be ready for a fresh cup from Luckin Coffee (OTCMKTS:LKNCY) after reports that the Chinese coffee purveyor will pay $180 million to settle accounting-fraud charges.
The U.S. Securities and Exchange Commission (SEC) announced the penalty yesterday, eight months after the Chinese company disclosed that some of its officers fabricated sales in 2019. As is usually the case in these matters, Luckin neither admitted nor denied the SEC’s fraud claims, which were filed in Manhattan federal court.
What didn’t Luckin admit nor deny doing? The watchdog said management intentionally faked more than $300 million in retail sales from April 2019 to January 2020 by using purported individual customer accounts and related parties and shell companies. Plus, there was about $196 million in bogus expenses.
LKNCY stock hasn’t really recovered from the fallout that included a delisting of its shares from the Nasdaq in mid-July. A year ago, the shares traded hands for as much as $50 a piece. Yesterday they closed at $3.74, or about the same price as a Grande cappuccino at Luckin’s biggest rival, Starbucks (NASDAQ:SBUX).
LKNCY Stock Is Not Out of the Woods, Yet
InvestorPlace contributor Ian Bezek last week wrote that traders haven’t given up on the company. “There’s potentially still a turnaround story, at least in theory. Luckin’s stores are real, and the company appears to have a lot of cash even despite the accounting issues.”
He wrote that he has some concern, including that Luckin’s troublesome founder isn’t totally out of the picture just yet.
Also, with the Nasdaq delisting, it no longer has the same scheduled reporting obligations. Bezek pointed to Luckin’s corporate investor relations website, where the last regular earnings report was from 2019, and the most recent pre-settlement press release was back in September.
As a Chinese company. Luckin is among those entities — and stocks — that give investors both a rush and the jitters. Why? Well, as Stephanie Avakian, director of the SEC’s division of enforcement, put it in the regulator’s announcement on Luckin:
“While there are challenges in our ability to effectively hold foreign issuers and their officers and directors accountable to the same extent as U.S. issuers and persons, we will continue to use all our available resources to protect investors when foreign issuers violate the federal securities laws.”
The Bottom Line
So, with the SEC settlement, can investors consider Luckin Coffee stock’s problems a thing of the past? Consider that China’s economy is on the mend, bouncing back from the pandemic faster and stronger than many Western countries. All those folks like to drink coffee today, just as much as before Luckin’s troubles came to the fore.
It may be ready to resume its previous growth trajectory.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.